Overview and Economic Importance of Family Businesses
– Family business is the oldest and most common model of economic organization.
– 44% of the Forbes 400 richest Americans derived their fortunes from a family business.
– Entrepreneurial and family firms were often underestimated compared to large publicly traded companies.
– Privately owned or family-controlled enterprises are not always easy to study due to limited financial reporting.
– Many of the largest publicly listed firms in some countries are family-owned, such as Walmart and Volkswagen Group.
– Family-owned businesses account for over 30% of companies with sales over $1 billion.
– Family businesses are a prime source of wealth creation and employment in the 21st-century global economic model.
– Family businesses are prevalent throughout the world, from corner shops to multinational organizations.
– The economic prevalence and importance of family businesses have often been underestimated.
– Government policy makers, economists, and academics recognize the significance of entrepreneurial and family enterprises.
Global Family Business Index
– The Global Family Business Index comprises the largest 500 family firms globally.
– A privately held firm is classified as a family firm if a family controls more than 50% of the voting rights.
– For a publicly listed firm, a family firm is classified if the family holds at least 32% of the voting rights.
– The index was first published in 2015 by the Center for Family Business University of St. Gallen and EY.
– The Global Family Business Index provides insights into the prevalence and influence of family-owned businesses.
Problems and Challenges in Family Businesses
– The interests of the entire family may not align with the interests of the business.
– Nepotism is a common problem in family businesses, impacting workplace atmosphere and worker contributions.
– Conflicting interests can arise between family members who have different roles in the business.
– Balancing family, ownership, and business roles can be challenging due to conflicting values and goals.
– The dynamics of the family system and the business system may not always be in balance.
– The three circles model represents the family, ownership, and management roles in a family-owned or -controlled organization.
– Family members prioritize emotional capital, while executives focus on strategy and social capital.
– Owners are interested in financial capital and wealth creation.
– The model shows how the roles may overlap, with some individuals holding all three roles.
– Each circle has its own concerns and priorities, creating potential conflicts and challenges within the family business.
Strategies and Approaches in Family Business Management
– Genogram: Organization chart for the family, enhanced family tree, shows family events and relationships, useful for spotting relationship patterns, decrypts seemingly irrational behavior.
– Parallel planning processes: Balancing family and business demands, critical issues where needs overlap, capital allocation between family and business, decision-making power in family and firm, selection of individuals for leadership positions.
– Fair process: Fairness in family business decision-making, perceived fairness increases acceptance and support, engages family members in practical steps, creates organizational justice, foundation for continued family participation.
– Emotional dimension: Recognizing and understanding emotional issues, creating narratives to explain emotional dimension, emotional issues compound business problems, applying psychodynamic and family systematic frameworks, preparing for life cycle transitions and other issues.
– Structuring: Balancing personal interests with business needs, assets owned by the family are hard to separate, difficulty in balancing competing interests, founder transitioning involvement in the business, multiple owners with different interests.
Succession in Family Businesses and Research Studies
– Succession: Factors affecting family business and succession process, size of the family and suitability to lead, potential successors’ professional experience, education of potential successors, satisfaction levels in planned succession process.
– Examples of family businesses: Adani Group, Aditya Birla Group, ArcelorMittal, Avantha Group, Bombardier Inc.
– Research and Studies: De Massis, Alfredo; Josip Kotlar; Jess H. Chua; James J. Chrisman (2014). Ability and Willingness as Sufficiency Conditions for Family-Oriented Particularistic Behavior: Implications for Theory and Empirical Studies (PDF), Alfredo De Massis; Pramodita Sharma; Jess H. Chua; James J. Chrisman (2012). Family Business Studies: An Annotated Bibliography, Carlock, Randel S; Manfred Kets de Vries; Elizabeth Florent-Treacy (2007). Family Business. International Encyclopedia of Organizational Studies, Chakrabarty, S (2009). The Influence of National Culture and Institutional Voids on Family Ownership of Large Firms: A Country Level Empirical Study. Journal of International Management, Kachaner, Nicolas; Stalk Jr., George; Bloch, Alain (November 2012). What You Can Learn from Family Business. Harvard Business Review.
– Challenges and Conflicts: Levinson, Harry. Conflicts That Plague Family Businesses. Harvard Business Review, Clarke, Rochelle. Avoiding the Negative Impact of Nepotism in Family Business. Forbes, Ramez Wazni, Imad (2023). The Effect of Nepotism on Engagement and Turnover Intention in Lebanese Family Businesses. Journal of Language and Linguistic Studies, McGoldrick, M.; Gerson, R.; Shellenberger, S. (1999). Genograms Assessment and Intervention (2nded.), Randel S Carlock; John L Ward (2001). Strategic Planning for the Family Business: Parallel Planning to Unify the Family and Business.
– Benefits and Success Factors: Carlock, Randel S.; Ward, John L. (October 2010). When Family Businesses are Best. London: Palgrave Macmillan, Manfred F. R. Kets de Vries; Randel S. Carlock; Elizabeth Florent-Treacy (September 2007). Family Business on the Couch: A Psychological Perspective, Walczak, D.; Voss, G. (2013). New Possibilities of Supporting Polish SMEs within the Jeremie Initiative Managed by BGSources: https://en.wikipedia.org/wiki/Family-owned
